Here’s what federal tax reform means to you  and your paycheck

Monday

Feb 5, 2018 at 7:53 PM

The new federal tax plan is now in effect — and it’s going to mean more spending money for most people, at least in the short term.

Most workers across the country will have less tax money withheld from their pay, now that the Internal Revenue Service has released new withholding tables and instructed employers to make adjustments.

Q: How much will paychecks change?

A: The exact amount will vary depending on an individual’s earnings, frequency of pay and whether deductions are claimed. U.S. Treasury Secretary Steve Mnuchin said 90 percent of workers will see an increase in their paychecks. The Tax Policy Center, meanwhile, said 80 percent of taxpayers will receive an overall tax cut in the 2018 tax year.

A single person who earns $50,000 a year, has no children, claims no deductions and is paid biweekly could receive as much as $61 more per paycheck under the new tax structure.

A married couple with two children under 17 and a household income of $75,000 would receive an overall tax break of $2,119 in 2018, according to a Tax Policy Center analysis. A married couple with two children and an income of $30,000, meanwhile, would receive a tax break of $817 — or roughly the same percentage.

Q: When will these changes appear in paychecks?

A: The IRS guidelines, published last month, instructed employers to implement changes by Feb. 15.

For payroll departments, making changes quickly — during weeks when they are also sending out W-2 forms to employees for their 2017 taxes — is a challenge, said Alice Jacobsohn, senior manager of government relations for the American Payroll Association.

Companies that use software services or vendors for payrolls will need to ensure those third parties make adjustments, and then test the changes themselves, Jacobsohn said.

Q: Will everyone get a tax break?

A: Even if take-home pay goes up, not everyone will get a tax cut. Lawmakers in high-tax states have said they are concerned about constituents who relied on large deductions of state and local income taxes, because that deduction is now capped at $10,000. New Jersey, with its highest-in-the-nation property taxes, is scrambling to soften that blow, through potential changes to the state tax system and a plan to join other states in suing the federal government.

Tax cuts also vary based on how much people earn. “In general, higher-income households receive larger average tax cuts as a percentage of after-tax income, with the largest cuts as a share of income going to taxpayers in the 95th to 99th percentiles of the income distribution,” a Tax Policy Center analysis found.

Q: Will taxpayers still get refund checks after filing taxes?

A: In the process of changing withholding tables, IRS officials said they aimed to limit over- and underwithholding. That means tax refunds will likely shrink for many taxpayers, said David L. Zalles, a Blue Bell tax accountant.

The average refund for individuals was $2,795 in fiscal year 2016, according to IRS data.

If someone had grown accustomed to large refund checks to pay off debt or fund a vacation, Zalles said, this year’s changes may lead to an unpleasant surprise next year.

Never miss a story

Choose the plan that's right for you.
Digital access or digital and print delivery.